federal reserve

Why interest rates matter

Some context: I find that almost no one understands what interest rates are and what the Federal Reserve did last week when it “left rates unchanged.” But interest rates are important. Below is my brief, basic explanation of what interest rates are, what the Federal Reserve is doing when they set interest rates, and why […]

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Dehomogenizing deflation

From Selgin, Lastrapes, and White: The postwar eradication of deflation would count among the Fed’s achievements were deflation always a bad thing. But is it? Many economists appear to assume so. But a contrasting view, supported by a number of recent studies, holds that deflation may be either harmful or benign depending on its underlying […]

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Brief musings on the market

The DJIA lost 3.57 percent today. Last Friday it lost 3.12 percent. This is nowhere near even the 20th worst day in the DJIA’s history—a 6.98 percent loss on September 29, 2008. But the past two trading days do represent the DJIA’s 19th and 20th worst daily point losses ever. Most economists think Greenspan’s Fed left […]

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Dark clouds looming

A good piece from The Economist on “the dark clouds around the silver lining” of Fed monetary policy. A highlight: …constraining the economy to so low a rate of average inflation is a good way to ensure that very low inflation or deflation becomes a serious threat whenever the next shock hits. That would be nasty […]

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The Fed is frustrating (and won’t raise rates in 2015)

The Editors at BloombergView are spot on with this one: Here’s the point, and it’s really quite simple: The Fed doesn’t know when it will start to raise interest rates, nor should it have to know, nor should it indulge analysts’ misconceived determination to find out. Interest-rate changes are not, and should not be, on […]

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Central banking like it’s 1989

Ashley Kindergan writes a great piece at The Financialist on the growing divergence between central banks, the likes of which we haven’t seen in 25 years. In 2015, global monetary policy could look like a mirror image of its 1989 self. The Bank of Japan already expanded the scope of its asset purchases in October. The […]

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There is no real trade-off between loans and reserves

In this piece at Reason.com, economist Robert Murphy writes the following: But the U.S. economy has stayed in this holding pattern, where people expect low consumer price inflation and so commercial banks keep their excess reserves earning 25 basis points parked at the Fed rather than make new loans. Thus the process I described above […]

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Here’s nice summary of four economists’ in-their-own-words views on why inflation is so low despite five years of quantitative easing. I find Schiff unconvincing, Henderson refreshing, Sumner quite convincing, and Murphy wrong (disappointingly). Check it out and see if you can tell why.

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The Fed to investigate itself for regulatory capture

I’ve written before about regulatory capture at the Fed. Now even the Fed has been forced to respond, but they still don’t seem to take all this seriously. According to Fortune, William Dudley, who heads the New York Fed and is consequently responsible for supervising most of the country’s largest banks, will tell a Senate committee later […]

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Corruption at the Fed

Senators Elizabeth Warren and Sherrod Brown have called for an investigation of the Federal Reserve Bank of New York. This comes as a response to a ProPublica article by Jake Bernstein, true yeoman’s work, that exposes an all-too-cozy relationship between the Fed and Goldman Sachs. Relying on secret recordings made by a former Fed compliance attorney, he writes: […]

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